Choice of law and jurisdiction – best practice

Choice of law and jurisdiction – general points

Lloyd’s attaches significant importance to the requirement of specifying a choice of law and jurisdiction clause in all (re)insurance contracts. Where parties to the contract fail to do this at the outset, neither insured nor insurer can be confident as to how the contract might be interpreted in a court of law. Market Bulletin Y3406 provides more detailed guidance on this topic.

Determining the choice of law and jurisdiction therefore aims to reduce any ambiguity in the outcome of potential litigation, should a dispute arise.

Parties should specify the following in each contract:

• Choice of Law: which territory’s law they intend will be used to determine the dispute; and
• Jurisdiction: in which territory they intend any dispute relating to the contract will be heard.

It is important that the applicable choice of law and jurisdiction clauses comply with what is permitted under local law and regulation. The parties to the contract may choose the applicable law and jurisdiction that applies to the contract if local law and regulation permits them to make that choice.

Factors to consider when determining the choice of law

The choice of law should be determined by all the relevant details of the risk including, but not limited to:

• the class and type of business
• the location of the risk
• the location of the insured
• whether the risk is a large or mass risk (EU & EEA member states only)

Once the choice of law has been determined, Lloyd’s recommends defining the jurisdiction. 

US Surplus Lines and Assumed Reinsurance Business

For US Surplus lines business and reinsurance business, underwriters must submit to jurisdiction in any US competent court, therefore no state’s jurisdiction should be specified. 

US Exempt Business

For business which is not subject to US surplus lines requirements, either because it is exempt business or it is licensed business, a specific territory or state is required for both choice of law and jurisdiction.

Points to remember

• It is important to comply with local laws and regulations when determining the relevant law and jurisdiction which will apply to a (re)insurance contract in the event of a dispute between the parties. Please refer to our online tool, Crystal for territory specific guidance.
• The choice of law and jurisdiction should not be confused with the territorial scope or geographical limits of the cover, which describes the territories in which the policy provides insurance coverage.
• Choice of law and jurisdiction is not determined by the location of the risk. Risk location rules determine the territories whose laws, regulations and tax rules apply to an insurance contract. 
• Choice of law and jurisdiction is a different concept to service of suit. The service of suit nominee is the party who is authorised or nominated by insurers to accept service of legal  proceedings on their behalf.

For further information please visit Crystal or contact LITA.